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Q3 2019 Structured Product Maturity Results

Josh Mayne, Lowes Financial Management - 08/10/2019

Josh Mayne, Lowes Financial Management

Beginning at a respectable 7497.50 points, the Q3 performance of the FTSE 100 Index told a tale of three months. July continued Q2’s late form with steadily high index levels, reaching the quarter’s peak of 7686.61 on 29th July. In August, however, the index suffered a 4.98% fall over the month, having reached a low of 7067.01 on 15th August. September, a month of redemption, observed a steady rise in the index, before finishing at 7408.21 – 1.19% down on the quarter.

Almost 90% of retail structured product maturities were linked to the performance of the FTSE 100 Index; 59 plans were solely linked to the FTSE, and a further 20 plans were linked to the FTSE and another major market index. The remaining 16 plans were linked to alternative, niche indices such as the EVEN 30, or to a basket of shares.

95 products matured over the months of July, August and September, 90 of which successfully matured returning investors’ original capital in full, in addition to a gain. Five products however failed to mature with a gain, with two of these resulting in a capital loss.

Q3 structured products maturity analysis. Source: Lowes Financial Management.

The average annualised return from all maturities in the quarter was 5.53% over an average term of 3.45 years. Twenty of the quarter’s maturities had been granted ‘Preferred’ status by Lowes Financial Management when launched. ‘Preferred’ plans are those that we believed to have the most attractive terms at the time of launch. The average annualised return from the ‘Preferred’ plans that matured in the quarter was 7.25% over an average term of 3.55 years.

The best performing maturity in Q3 on an annualised basis was Meteor’s FTSE/STOXX Defensive Kick Start Plan September 2018, which kicked out on its first anniversary generating a return of 11%. Close behind was the FTSE 100 only linked, Mariana Capital 10:10 Plan July 2016 (Option 3), which kicked out on its third anniversary generating a gain of 35.1% giving an annualised equivalent return of 10.55%. The 10:10 Plan is a product shape conceived by us here at Lowes.

As previously mentioned, Q3 did see two retail structured products mature resulting in a capital loss. This signalled the end of a winning streak of eight consecutive quarters of no products maturing in negative territory.

The losses arose because the plans in question were linked to the performance of baskets of shares, rather than a mainstream index. Both were again Meteor offerings, with one suffering from the decline in the share price of Standard Chartered Plc, which lost 55.91% over the plan’s term and the other which suffered on the back of a 63.35% fall in Marks & Spencer Plc. Whilst the total return of the second plan was cushioned by the income it had paid throughout the term, this was not the case for the former, which resulted in only 44.09% of capital being returned – an annualised loss equivalent to -12.76% per annum. What is particularly tragic is the fact that, during the quarter, the surrender value of this plan reached a high that would have represented a 61% gain, but this was very short-lived.

We would like to reaffirm that neither of the plans that made a loss, nor the three plans that matured returning only investor’s original capital were granted ‘Preferred’ status by Lowes

Q4 2019 promises to be an exciting period amidst worldwide uncertainty, with ongoing trade wars between China and US and the recent tariffs imposed on the EU by Trump bound to continue impacting global markets. Brexit could reach boiling point on the 31st October but either way, it will be fascinating to see the effects it has on UK markets and investor sentiment.

Kick-out plans with longer maximum possible durations, such as the 10:10 Plan are designed to reward investors in the short to medium term if markets are broadly positive and reward them handsomely over the long-term, if markets decline but recover before the final maturity date. Whilst none of us are in a position to predict the future, certainly in terms of market movements, hopefully most of us will concur that ten years should be long enough to ride out any storms

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